Perspectives

Growth returns to UK construction sector - but tender prices remain static

The UK construction sector saw an uptick in growth in the second quarter of 2018 – but this positive news was balanced by surging labour and material costs.

This is according to Mace’s latest UK tender cost update, published today, which shows that tender prices are not rising in line with costs as clients push back on contractors who appear to be willing to accept less favourable terms. 

The figures show that overall construction output rose by 0.9% in quarter two, a much needed boost following the collapse of Carillion and the lasting effects from the bad weather faced by the UK in the early part of the year. 

At the same time, material price inflation has risen to 6%, higher than at any time last year. This is mainly due to rising oil and steel prices. However, this has not boosted tender prices as could be expected. 

Mace believes that this is due to a combination of factors, both related to Brexit. Developers are pushing hard on costs to ensure scheme viability, while at the same time contractors – nervous about maintaining a solid pipeline of work – are reducing their margins and exploring new procurement models. 

Looking ahead on that basis – and conscious that uncertainty about Brexit shows little sign of being resolved - Mace has adjusted down its tender price forecasts for 2020 and 2021, from 3% in both years to 2% and 2.5% respectively.

Steven Mason, Mace’s Managing Director for Cost Consultancy, said: 

“An increase in construction output in the second quarter has done little to settle nerves in an environment of increasing uncertainty surrounding Brexit and spiralling increases in input costs. 

“While the overall impact of these conditions will continue to have a small positive effect on forecast tender prices for 2018, the continued unease and desire to secure workload in 2019 will continue to squeeze margins throughout the supply chain for the foreseeable future.” 

“An increase in construction output in the second quarter has done little to settle nerves.”

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